How Bearish Technical Traders Predicted the Downside in This Cloud Stock

Rebel Hub Education

Justin Nugent

March 20, 2023
at 1:27 PM

Salesforce, a popular cloud stock, posted an excellent Q4 earnings report in the month of March.

Source: CNBC

This caused the stock to see meaningful price appreciation the following day.

However, while everyone on the street was buying in, the professional traders inside of Market Rebellion’s Rebel Weekly were stepping back, looking for an opportunity to cash in on a potential pullback.

Level Up Your Trading

Get a custom-designed trading program tailored to your individual needs, skill level, and schedule.

How Professional Options Traders Construct a Trading Plan

In the case of Salesforce, this is what the trading plan looked like.

When the CMTs inside of Rebel Weekly sought to craft a trading plan for Salesforce (CRM), they didn’t pay the earnings result any mind. That’s because they aren’t making qualitative judgments about the future of the stock – they’re looking to get in and out as quickly as possible using weekly options. They’re making quantitative judgments.

To make quantitative judgments, they must separate themselves from all aspects of the business itself in order to focus solely on price. When constructing a trading plan, technical traders ask themselves, “where are the key price levels of this particular equity?”

Let us show you how to find Unusual Options Activity

Everything you’ve ever wanted to know about Unusual Options Activity—in one convenient insider’s guide.

To find those levels, the analysts rely on fundamental technical analysis tools, like flat lines, trendlines, and moving averages. More than anything else, analysts search for areas in the chart that have time-and-time-again proven to be levels of support or resistance.

In our example from above, the analysts relied on a level of support that the stock had bounced off of in the near term and in the short term.

That would become the trigger.

VOCAB CHECK: Trigger

In trading, a trigger is the price at which a trader should be entered. When a trigger is crossed by the price action of a stock, the price of the stock is expected to move further in the direction that it crossed. Triggers “trigger” the beginning of a trade.

From there, analysts use prior data to determine measurements like average true range, while continuing to hunt for additional areas of potential support or resistance near the trigger. These serve as “levels” where the trade can be closed or rolled.

In the case of our Salesforce example above, those were $182.08, $181.03, $178.92, $175.69, $171.3, and $168.95.

Levels are not necessarily “must-sell” areas – they’re just areas to be wary of if the momentum begins to stall. That information would come in handy throughout the week, as the market watched Salesforce take a sudden, swift pullback. As soon as Salesforce shares pulled below the trigger, it was game over – the stock fell more than 7% between March 6th and March 10th, sending these $185-strike put options deep into the money, and increasing their worth as much as 3X by the final day of trading.

Salesforce bears were extremely pleased. Source: Google Finance.

The Bottom Line

Finding a stock that triples in value over the course of 5 days is extremely rare. That’s why options are such incredible tools. Trades like these aren’t rare – you just have to know how to spot them, and how to manage the trades. That starts with creating a trading plan like the ones that Rebel Weekly analysts create every week. They don’t just make one – they make two. One bearish, and one bullish, to prepare Rebel traders for any outcome the market throws at them.

Ready to give it a try? Check out Rebel Weekly below to get access to trades like these every single week.

Monthly

Annually